A Stitch In Time…

A stitch in time saves nine
  — old proverb

Success and failure in entrepreneurial ventures ebb and flow frequently. It is not easy to differentiate between an on coming trend versus ordinary noise and fluctuation. Entrepreneurs often struggle to determine when to change course and when to let things play out. Having seen this dance play out across many companies at many different cross-roads, I have developed a bias towards listening to one’s gut and taking action sooner rather than later. There are three types of situations that come up most often:

— questions around burn and liquidity
— questions around management
— questions around product strategy

Burn & Liquidity: At times, companies find that revenue has not ramped according to plan and that the monthly burn threatens to take down the company. The runway shortens to a number of months. However, the company does not want to make the hard cuts and reorganizations for fear of spooking customers, signaling to competitors or disrupting fundraising. So, they hope that the situation will turn itself around and that the capital will flow into the business. Unfortunately, the calvary rarely comes in to save the day and, unless the company has extended its runway pro-actively, it finds itself in a tough liquidity squeeze. As a rule of thumb, always make the hard cuts when you have the runway for those changes to have impact and to benefit the business. Too often, the evasive actions are taken with only one or two months to go and the runway extension is modest at best. If taken 6 or 8 months out, you can often stretch the runway to a year. I have seen too many companies start too late and end up driving the plane into the tip of the mountaintop.

Product Strategy: Ever been in a meeting where everyone on the team is complaining about how the customer doesn’t get it? You push and you push with your product/service and customer after customer fail to buy. They comment how it is "better than anything they have seen" and compliment you on the "value of the product" and yet fail to buy. You will often begin to hear common themes/concerns about the product. It is time to start experimenting with different product strategies. The unfortunate thing is that the customer is never wrong. They have the money so they determine the rules. You have to dance accordingly. There is an adage in the venture business…fail your ideas quickly. You want to burn as little capital as possible on failed approaches. Throw the spaghetti against the wall and iterate quickly around ideas that seem to stick. I have seen companies pushing hard on one attribute of their product (say cost), only to eventually gain success with another (flexibility or sensitivity or ….). Listen hard to your customer and eliminate any sense of entitlement or superior insight that you might have. It is your job to hear their issues/complaints and to response creatively and quickly. Too many a proud company went down with the ship simply because the "customer didn’t get it".

Management: Listen to your gut regarding your management. Set clear, realistic objectives, give them the resources you can and let them execute. If you find yourself losing confidence in any one manager and you find yourself dragged in repeatedly to their domain, you may likely have an issue. Unfortunately, this happens most often in the sales role. Underperforming managers hurt you in three ways: 1) they take up inordinant amounts of your valuable time, 2) they drag down the moral of the team and 3) they tend to hire really weak team members beneath them. One indicator of issue is "recurring non-recurring" problems. Things seem to always be off, but the reason is always different and the blame rests elsewhere. Once you have concerns, set clear objectives with distinct deadlines and act accordingly.

It is obviously important to not make rash decisions. However, I can’t remember a time when my gut told me there was an issue, I failed to act and didn’t end up regretting things later. I have also rarely taken action early and later regretted having taken the action. More often, you hear the comment "we should have done this months ago".

Early stage companies walk on a tight rope. It does not take much to throw them off balance. Once headed in the wrong direction, they gain momentum and are difficult to turn around once down a road a ways. A stitch in time saves nine…